What to expect if you max out your credit card

What happens if you max out your credit card, and what can you do to get back on track.

It happens to many people. For one reason or another, you reach the credit limit on a credit card. In other words, it’s maxed out—there’s no credit available for purchases or other transactions until you reduce your balance.

Maxing out a credit card could impact your credit score and increase your monthly credit card payments. That’s the not-so-great news. The good news is if you make the right moves, you could lessen the impact that a maxed-out card has on your credit.

How a maxed-out card affects transactions, credit scores and payments

On the surface, it may seem like maxing out a credit card is merely an inconvenience. But a maxed-out card could create issues for your credit in general. These issues may include declined transactions, decreased credit scores and increased monthly payments.

Declined transactions

If you’re a Capital One cardholder, you may be able to go beyond your credit limit without having to worry about your card being declined. If your account has access, you can use the Confirm Purchasing Power tool to check if an overlimit purchase may be approved. You can also disable the ability to spend over your credit limit in your overlimit preferences.

Other card issuers might decline a transaction when you’ve reached your credit limit. This could be frustrating if you need to use your card for an emergency expense like car repairs or dental work.

Capital One doesn’t charge fees for going over your credit limit. View important rates and disclosures. But other credit card issuers may. They could approve transactions made on a maxed-out card but charge what’s known as an over-the-limit fee. A card issuer can charge this fee only if you’ve agreed to participate in its over-the-limit coverage program. If you’re not a Capital One customer, be sure to check with your lender to understand all the terms of its over-the-limit coverage program before you opt in.

Decreased credit score

Another result of maxing out a credit card is the impact it can have on your credit scores

Reaching or even exceeding the limit on a credit card affects your credit utilization ratio. This ratio is a percentage of how much of your available credit you’re using. And according to the Consumer Financial Protection Bureau, experts suggest keeping your overall credit utilization ratio below 30%.

What does your credit utilization ratio have to do with your credit score? A lot.

At FICO®, a major provider of credit scores, the amount of available credit you’re using makes up 30% of your credit score. 

VantageScore®, another major provider of credit scores, doesn’t offer an exact number indicating how much weight it puts on your credit utilization ratio. But it does say that total credit usage, balances and available credit are extremely influential.

Among other things, a low credit score could result in a credit or loan application being denied. It could also mean a higher interest rate on credit cards and loans. 

Increased minimum payments

A maxed-out card can increase your minimum monthly payment.

The minimum payment is the smallest amount you must pay each billing cycle. If you’re not able to pay your balance in full, making at least the minimum monthly payment on your credit card can help you avoid penalties and fees.

Credit card minimum payments are usually calculated based on your monthly balance. So if you max out a credit card, your balance will go up. That, in turn, can raise your minimum monthly payment. 

If you pay off your balance, you can avoid a higher minimum monthly payment. But if you make only the minimum payment each month, it can drag out the amount of time it takes to pay off the balance. Especially if you continue to use the card once you have available credit again. It also means you’ll wind up paying more in interest charges.

What to do if you max out your credit card

If you’re able to pay your balance in full each month and have outgrown your credit limit, you could look into a credit limit increase or a new card. Federal regulations require that credit card companies use up-to-date income information when considering an account for a credit limit increase. So check your account details at least once a year to make sure they’re up to date. Your lender may want to know information like your total annual income, employment status, and monthly mortgage or rent payment. 

Before making any decisions, though, consider whether you’re comfortable paying off a higher credit limit without overextending yourself. 

But if you’re maxing out your credit card because you can’t pay off your balance, don’t lose hope. You can take steps to turn things around.

Create a payment plan

One way to change course after you’ve maxed out your credit card is to pay it off as soon as possible. Easier said than done, though, right? 

If you’re unable to pay off your credit card balance in full every month, there are two popular ways to pay down debt that could help.

The debt snowball method focuses on small victories when tackling your credit card debt. When you use this method, you’ll make at least the minimum payments on all your accounts. But you’ll focus on paying off your smallest debt first, followed by the next-smallest debt and so on until you’re debt free.

The debt avalanche method works differently. Using this method, you concentrate on paying off the highest-interest debt first, while still making at least the minimum payments on your other accounts. When you’ve paid off that highest-interest debt, you put that money toward the debt with the next-highest interest rate. 

Get credit counseling

If you feel stuck and not sure where to start, you might consider credit counseling. 

A nonprofit credit counselor could also help you develop a budget and get a better handle on your debts. The Federal Trade Commission offers several tips to make sure you choose a trustworthy credit counselor that’s right for you. 

Avoid overspending to steer clear of new debt

When you’re trying to get control of your debt, avoiding overspending could be a good place to start. And if you’re considering applying for new credit, keep in mind that typically triggers what’s known as a hard inquiry. And that can cause your credit score to drop.

You might also look into debt consolidation. This allows you to combine debts, through either a balance transfer or a loan, into a single monthly payment—ideally at a lower interest rate than what you’ve been paying on the accounts you’re consolidating.

Create a budget

Setting up a budget can help you stay on track with your spending. It also helps you identify areas where you can cut expenses. In the end, a budget can be a solid defense against maxing out your credit cards. In fact, a budget worksheet can be helpful here. 

As you’re working on your budget, you might consider establishing an emergency fund that covers at least three to six months’ worth of living expenses. This money can be beneficial when you’re in a financial bind and you’re tempted to max out your credit cards.

The bottom line on maxing out a credit card

Maxing out one or more credit cards—leaving you unable to spend beyond your credit limit—can max out your emotions and your finances. Unfortunately, it can also trigger declined transactions, hurt your credit score and bump up your minimum monthly payments. However, you can take a number of steps to minimize the effect of maxed-out credit cards, such as working on paying off credit card balances in full every month and sticking to a budget.

You might also consider the Capital One Money & Life Program. It offers free 1-on-1 mentoring sessions to anyone, whether or not they’re a customer. A professional money mentor will help you get clear on your goals in life and how money relates to those goals, understand what’s getting in your way, and make a personalized plan to achieve your goals. There are also group workshops and self-guided exercises available to help you gain new perspective on and clarity about your finances. 

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